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Three-day rally on stock markets stalls

By Malcolm MorrisonTHE CANADIAN PRESS

Wed., Feb. 27, 2008

Stock markets put in a weak showing after three days of strong gains as investors looked for direction amid some good news on interest rates and the mortgage sector along with more helpings of dreadful economic news.

Toronto's S&P/TSX composite index declined 18.63 points to 13,778.38, following a gain of almost 300 points since last Thursday, partly on reassuring news from U.S. bond insurers.

The gains took the TSX to just 54 points away from where it started the year.

As as has been the case so often this year, most support Wednesday came from mining stocks.

Nortel Networks Corp. (TSX: NT) was a big loser, tumbling $1.53 or 13.65 per cent to $9.68 after the telecom equipment maker handed in a fourth-quarter loss of US$844 million while announcing it is cutting 2,100 more jobs and transferring 1,000. Revenue in the quarter was US$3.2 billion, down four per cent, and Nortel predicted sales growth this year in low single-digit percentage terms.

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The TSX Venture Exchange gained 38.97 points to 2,754.46.

The Canadian dollar closed up 0.18 of a cent to 101.97 cents US, adding to a surge of about three cents over the past two sessions as the American dollar weakened.

The U.S. dollar sank Wednesday to its lowest level ever against the euro after markets took comments from the Federal Reserve chairman as a sign that yet more U.S. rate cuts are on the way top cushion the decline of the American economy. Investors also worry about a combination of stagnant growth and high inflation, or stagflation.

The euro surged as high as US$1.5143.

In New York, the Dow Jones industrials added 9.36 points to 12,694.28 following a 400-point surge in the previous three sessions.

The Nasdaq composite index was up 8.79 points to 2,353.78 while the S&P 500 index was down 1.27 points at 1,380.02 after Fed chairman Ben Bernanke told a U.S. House of Representatives committee that "the economic situation has become distinctly less favourable."

Bernanke indicated that despite the recent run-up in energy and other prices, the central bank's No. 1 priority is shoring up the economy.

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"The message I'm getting is that we've got a couple of nasty inflation surprises (but) he's leaning more to concerns more about growth," said John Johnston, chief strategist of the Harbour Group at RBC Dominion Securities.

"He's keeping his medium-term sights on inflation but in the near term he is reassuring the markets that he will react to the weakness in the economy."

The U.S. Commerce Department reported that durable goods orders dropped by 5.3 per cent last month – the largest amount in five months – reflecting declines across a wide swath of industry.

"It is clear that downside risks to growth remain and the Fed will likely continue to move rates lower to counter these risks," said RBC economist Rishi Sondhi.

"Our forecast calls for the policy rate to trough at two per cent in April."

Also, sales of new homes in the United States fell in January for a third straight month, to the slowest pace in nearly 13 years.

Investor confidence also got a lift after a U.S. government regulator said it would lift restrictions later this week on the amount of mortgages government-sponsored mortgage companies Fannie Mae and Freddie Mac can hold on their books.

The Toronto stock market's energy sector was down 0.55 per cent as the April crude contract on the New York Mercantile Exchange declined $1.24 to US$99.64 a barrel after the U.S. government said stockpiles of crude oil and gasoline rose far more than expected last week.

Shares in Laurentian Bank of Canada, the country's seventh largest bank, were up $1.71 to $40.50 as it reported first-quarter profit dipped to $19.1 million from a year-ago $20.6 million.

Total revenue increased seven per cent to $151.1 million, mainly on improvement in net interest income, associated with loan and deposit volume growth, and securitization revenues.

The gold sector was up two per cent with the April bullion contract in New York gaining $12.10 to US$961 an ounce after earlier hitting $967.70 an ounce. Goldcorp (TSX: G) gained $1.10 to $42.54 and Barrick Gold Corp. (TSX: ABX) climbed 90 cents to $50.60.

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